Last week brought renewed uncertainty on the Brazilian policy outlook. A new round of arrests in the Carwash probe raises questions about the feasibility of passing fiscal measures. At the same time, COPOM delivered a surprising postmeeting communiqué where two members voted for a 50bp hike. 

The split decision could be read as a signal that the COPOM is on the eve of resuming the tightening cycle. However, it is believed that the weakness in the labor market should keep policy rates stable in the face of short-term inflationary pressures. This week's minutes will shed more light on how the majority of COPOM members weigh these crosscurrents.